The Security Traders Association, (“STA”) opposes the provision in the Tax Cuts and Jobs Act reported by the Senate Finance Committee that would generally require taxpayers selling, gifting or otherwise disposing of securities to determine cost basis on a first-in, first-out (FIFO) basis, effective for dispositions on or after January 1, 2018. Under current law, when a taxpayer disposes of securities in which he or she holds multiple lots purchased at different times, the taxpayer can select the specific lots they wish to exchange in the transaction. The Senate Tax Cuts and Jobs Act provision would continue to permit registered investment funds to use specific lot identification, but would take that right away from other taxpayers, including for transactions in registered fund shares. This change would make markets less efficient and effectively raise taxes on retail and other investors. Long-term buy-and-hold investors that are at the heart of the individual retail stock market would be disproportionately impacted by the tax increases in this provision.

STA believes that generally requiring FIFO will harm individual retail investors as well as those who use Separately Managed Account programs (“SMAs”) by effectively raising taxes on these investors. An SMA is a portfolio of assets under the management of a professional investment firm that offers investors the ability to have their assets managed to their return objectives, risk tolerance and special circumstances. SMAs also offer transparency into purchases and sales of securities, which contribute to overall investor confidence. Mandatory FIFO would interfere and most likely harm the attractiveness of SMAs.

While STA appreciates the delicate balancing act that comprehensive tax reform entails, we respectfully request that mandatory FIFO be struck from the Tax Cuts and Jobs Act, maintaining flexibility for all investors.

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For inquiries please contact Jim Toes at sta@securitytraders.org